Characteristics of Alt-A
Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of "conforming" or "agency" mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.
There are numerous factors that might cause a mortgage not to qualify under the GSEs' traditional lending guidelines even though the borrower's creditworthiness is generally strong. A few of the more important factors are:
- Reduced borrower income and asset documentation (for example, "stated income", "stated assets", "no income verification")
- Borrower debt-to-income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
- Credit history with too many problems to qualify for an "agency" loan, but not so many as to require a subprime loan (for example, low FICO score or serious delinquencies, but no recent charge-offs or bankruptcy)
- Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involved
In this way, Alt-A loans are "alternatives" to the standard of conforming, GSE-backed mortgages.
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